2024-01-12 03:30:35
The equity markets ended the year on their good momentum in November, interpreting the latest meetings of the FED, ECB and BOE in the same way: in the eyes of operators, the rate increases are now over and significant reductions are expected in 2024.
For now, 10-year bond yields returned last month to their December 2022 levels, thus exceeding, almost a year in advance, the projections of investment bank economists for the end of 2024. In the At the same time, the Dow Jones and the Nasdaq100 reached historic highs, the latter index even posting an impressive increase of 40% over the year.
5 major areas of concern
Now to watch:
(1) A possible new inflationary surge (potentially linked to geopolitical tensions and their impact on supply chains and deglobalization), which would call into question the rate cuts.
(2) A recession, which seems closer in time in Europe and the United Kingdom than in the United States, and which would raise the prospect of a sharp rise in the stock markets.
(3) The situation of the Chinese economy, while stock indices have fallen by 15% this year. A recovery could favor global equity markets to the detriment of bonds (with a potential inflationary effect).
(4) The American elections, with a presidential campaign which promises to be eventful, are likely to weigh on the markets and risk reducing the FED’s room for maneuver in the second part of the year. Generally speaking, many elections will take place this year, notably in India, the European Union and the United Kingdom.
(5) Developments in Artificial Intelligence, which could have an impact on productivity (with, by extension, a deflationary effect).
Priority to the short term!
At present, long rates have already corrected significantly, particularly on the Old Continent. Therefore, it does not seem appropriate to chase long bonds in Europe, particularly if predictions of rate cuts are called into question. We therefore favor the short term with leverage, even if it means waiting for a better entry point in the long term. Furthermore, the refinancing needs of companies in 2024 and 2025 are a priori higher than in 2023, which could weigh on bond yields.
We also observed a renewed interest in December for Notes exposed to fixed income with leverage, after a month of November more focused on the long term, and favor return strategies for the start of 2024.
Thus, the range of interest rate increases, which we talked about last month, have been very popular. They could remain so at the start of the year, knowing that term deposit offers could become less attractive at the turn of the new year. Similar increased range strategies on equity indices will also be interesting as an alternative to autocalls, while the rise of equity indices seems less obvious today. Interest in structures participating in the fall in equity markets (with protected capital or not) also increased at the end of the year and should remain a subject for the start of 2024.
Our Protect90 mandate continued to appeal in December, especially for investors in PER format. This product comes at the right time for 2024, including for investments in securities accounts, for example in cash management: liquid mandate, exposed to upside via ETFs, and with capital protected without being blocked over the long term, all managed under volatility control.
Characteristics that are attractive to say the least given the long list of uncertainties for 2024…
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